Torrey Hills Capital IR Client Press Release
Happy Friday Everyone!
I am going to start out today's post with a quote from the notorious but often sage Michael Douglas character from the iconic 1987 movie Wall Street:
"The most valuable commodity I know of is information." Gordon Gekko
In the micro-cap realm we continue to find this to be a very true statement. These inefficient, choppily traded markets can work to an investors advantage by leveraging information that is public but has not yet been picked up on by the mainstream investment community. We see this phenomenon as being the case with quantum dot/nanomaterials pioneer Quantum Materials Corp. (OTCQB: QTMM) - note: for those not familiar with quantum dots, and it's ok if you're not because we just got up to speed on this recently - they are incredibly small, man-made chrystalline semi-conductors - 5 to 50 nanometers in diameter that harness the incredible power of light photons.
We are perched on the razor's edge of one of, if not the biggest fundamental technology shift in our lifetime: the age of quantum materials - and specifically the use of "quantum dots" to harness the unique properties of light to drive a myriad of major advancements in consumer and industrial products ranging from materially richer color display panels for TV's and handhelds, to highly efficient solid state lighting and medical diagnostic equipment to eventually next gen, high-yield solar cells that will be competitive and likely cheaper sources of energy than existing fossil fuels.
And in case you think this is just us drinking the Kool-Aid, here's an excerpt from an article out just this week quoting UBC physics professor and quantum dot researcher Andrea Damascelli on the future of quantum dots that puts this paradigm shift into perspective: Damascelli believes quantum materials will have a bigger impact on our lives than the semiconductor, which was invented in 1947 and laid the groundwork for the integrated circuit and the computer revolution that has so shaped the contemporary world.
“Today, I feel that we’re on the cusp of an even bigger revolution,” Damascelli said Monday. “This is a quantum material revolution, which I believe will have a much larger impact on our lives.”
There is so much to talk about regarding quantum dots and how this burgeoning technology is going to likely affect just about everything in the tech sector over the next five years - but today I just want to focus on the near term driver in quantum dots - what's happening right now that you need to be up to speed on (and most importantly how you can position yourself in this rapidly approaching market shift) -
. . . . .the flat panel display marketplace. Earlier this week, LG and Samsung backed up earlier statements informing the markets that they will be developing flat panel displays in 2015 incorporating quantum dots to drive the red, green, blue (RGB) color spectrum in these displays in order to create a much richer viewing experience/color gamut. They are doing this now to drive quality into their upper echelon product lines due to the fact that they have been unsuccessful in driving manufacturing costs out of their OLED line of displays (mostly due to high scrap rates). Quantum dots yield a visually similar (if not superior in terms of lowering power consumption, especially important in hand held battery powered devices) color gamut display panel to OLED and most importantly at a reduced manufacturing cost and can be incorporated directly into existing panel manufacturing lines. The end game here is to put displays on the market that "look like" OLED but "cost out" similar to LED/LCD displays - and once you see the quality of these next gen displays, it will be very hard to continue to watch the LCD TV you currently have in your home/office (yes the upgrade in color/contrast quality is THAT DRAMATIC - this new class of TV's/displays are just "off the chart" incredible!).
Here is a brief video release discussing this latest event that you should take a minute to watch right now: https://www.youtube.com/embed/Oky9ldwC5iM
OK, here’s the key takeaway from today's post. Quantum dots are coming. In fact they are already here when you see the two largest players in the space moving quickly in this direction. Quantum Materials Corp. is right in the middle of this transformational shift in technology with an extremely disruptive business model. They manufacture high quality quantum dots at what looks to be a low capital and operating cost (relative to existing market processes), and their ability to scale up rapidly to multi-tonne/year capacity is truly unique to the industry with their very solidly patented continuous flow micro reactor process (patents in place from Rice University and Bayer, AG).
What could this mean for Quantum Materials going forward? Well, we're glad you asked. QTMM's current capacity is 250kg per year of qd's (and have stated in their corporate PPT that they will soon be placing an order for the next gen scale-up of their proprietary continuous flow micro reactor process that will have a capacity of 1,000kg/year of qd's and could possibly have that online at, or around mid year 2015). The cost of this equipment is nominal and we understand this next gen reactor could cost under $2 million to build and put online. To get some perspective on the disruptive nature of the capex, Nanoco, (1 of 4 primary quantum dot players in the space) announced in September that they are going to be building a facility in South Korea (with partner Dow Chemical) to manufacture qd's that is scheduled to be operational sometime in the first half of 2015 at a cost of roughly $180 million!
But at this point let's just look at a VERY HYPOTHETICAL SCENARIO with just the present capacity at Quantum Materials Corp. of 250kg/year.
250kg is 250,000 grams. With several entrants moving quickly to move into high volume qd production, the current speculation for where pricing of quantum dots will be soon is in the range of between $500 to $1,500 per gram, (one gram is enough material for roughly four 50 inch display panels, so you don't need that much per display, and if you think that sounds expensive, it's really not as the traditional cost of quantum dots has run between $3k and $10k per gram! It really is one of the most expensive substances on the planet).
So if you look at the range of qd prices, we are looking at potential topline revenue FROM THE EXISTING CAPACITY AT QUANTUM MATERIALS' SAN MARCOS, TX FACILITY of between $125,000,000 & $375,000,000. Yes, these are very big number for a small company to come out of the gate with but if the demand ramps up (which by all accounts it looks like it's getting very close to the tipping point), we see this type of steep ramp as being very possible. Quantum Materials has not come out publicly stating operating costs but based on their low capex and 'low, to no labor' intensive model we think it could be somewhat safe to assume healthy gross margins especially in the upper levels of that earlier mentioned price range. Whatever the margin turns out to be, this type of revenue could yield some very exciting numbers for Quantum Materials Corp. in what we consider to be a high growth rate industry (several analyst groups are predicting steep growth rates for the quantum dot industry with estimates of $8-9 billion by 2023 giving this a CAGR of well over 50%) - and just think what this could represent when QTMM scales up capacity 4X or more in 2015 with their next gen level of processing equipment!
So we'll let you apply your own P/E ratio here to come up with a potential market cap and multiple of the present $50 million market cap of the company (note: Nanoco has a market cap in the $400 million dollar range (AIM listed: ticker NANO)
Your homework for the weekend is to do some DD on Quantum Materials Corp. and the quantum dot revolution and determine if this is a sector that you would like to participate in. There are many examples of companies going from garage based operations to multi-billion dollar market caps and remember, Quantum Materials has been at this for around 8 years developing some of the earliest IP in the space licensed and purchased from Rice University, University of Arizona and University of Texas (and most recently Bayer, AG) so they are not new to this game and in our opinion they are likely the most well positioned company in the space to capitalize on this exciting rapid growth industry (we are basing this statement on QTMM's stated ability to scale volume manufacturing quickly and their non labor intensive production process model).
Included in this post is an attachment that discusses the qd market space in detail. Also, we urge you to take a few minutes to visit QTMM's website and probably the quickest way to get up to speed (and "meet" some of the key management team at Quantum Materials) is to view 4 short, but very informative video segments taped at the their manufacturing facility in San Marcos, TX where you get to see quantum dots being made and hear directly from their CEO Steve Squires and VP R&D David Doderer on this incredible breakthrough technology. This is interesting, cutting edge stuff, so even it you decide this isn't for you, you will learn something new about what's next in the field of panel displays and solid state lighting.
Here is a link to these 4 videos: http://www.qmcdots.com/videos.php
(watch these in sequential date order).
(excellent source of white papers on quantum dots and the key value drivers for the company).
So we urge you to look closely at this company (but don't take too long!), put on your sceptics cap, put together your list of questions and give us a call - we'll walk you through this and get your questions answered, even the tough ones. We can even get you on the phone with their CEO if you would like to get a sense of where he plans to take the company over the next year or two. One of the things we like most about this group is due to the fact their process is so disruptive it doesn't look as if they are going to be forced to take on a big strategic/financial partner (like Nanoco did with Dow) to move forward and based on the fact that it looks as if they have the share vote block in place to prevent a hostile takeover, once the ride starts, we could be on it for some time to come. So your probably wondering who is Quantum Materials Corp. talking to right now? Well, we don't know them by name but from the recent PPT we know that they are in discussions with 34 product manufacturers and 7 university groups and have delivered sample qd's to 24 product manufacturers and 4 university groups. In fact, all you have to do is cruise the flat panel aisle at your local Bestbuy store or Google OLED Displays and you can get a sense of the companies that are interested in this space and moving quickly in this direction to mirror the moves made recently by Samsung and LG.
By all rights this should be a private company (they went public several years ago at the request of an early-in investor) and the first time the investing "public" would get a crack at it would be at the IPO (think GoPro or LinkedIn), but it is public and it’s trading at around $0.20 giving it a current market cap of just over $50 million - so we are not really going to ask why they are public at this level, we're just kind of glad that they are. So if you didn't get a chance to buy the seed round at GoPro (GRPO), or were "friends and family" of Zuckerberg or the group that built Universal Display (PANL) or Invensense (INVN), (we didn’t and we weren't!) this could be your chance to get in ground-floor on what looks to be the next huge win in the tech space and possibly down the road when they have QTMM's CEO Steve Squires in the padded chairs on the CNBC set talking about the next "gee whiz" application in quantum dot technology, you can turn to your colleagues and smugly say, "yeah, we got into that one pretty early" (or better yet, let them know about QTMM now and be the hero in the office that found it for everyone!).
So as Gordon says "This is your wake up call, go to work!"
Have a great weekend everyone and talk soon.
SD Torrey Hills Capital
Disclaimer: This information is provided by San Diego Torrey Hills Capital to provide readers with information on selected publicly traded companies. The reader should verify all claims and complete his or her own due diligence before investing in any securities of profiled companies. San Diego Torrey Hills Capital has been retained to provide investor relations services for some of the companies mentioned in this email and receives compensation for those services. Further, San Diego Torrey Hills Capital and its employees and affiliates may own, or may purchase and sell, securities of the companies profiled. San Diego Torrey Hills Capital undertakes no obligation to inform readers about the ownership or trading activities of it or its employees or affiliates in the securities of the profiled companies. Neither San Diego Torrey Hills Capital nor anyone involved in the publication of this email is a registered investment adviser or broker/dealer. San Diego Torrey Hills Capital makes no recommendation that the purchase of securities of companies mentioned in this email is suitable or advisable for any person or that an investment in such securities will be profitable. In general, given the nature of the companies profiled and the lack of an active trading market for their securities, investing in such securities is highly speculative and carries a high degree of risk. An investor in such securities should be prepared and able to bear a loss of his or her entire investment. Nothing in this email should be construed as an offer or solicitation to buy or sell any securities of any profiled company.